Yesterday reports were published on mortgage completions which fell very slightly from 52,404 in July 2009 to 52,317 in August 2009.  Commentators noted that this was the first monthly fall since November 2008, following which there had been steady monthly increases in mortgages completed. 

All well and good, but the facts are the number of completions are still at an historic low.  According to UK Government statistics there was an average of 136,000 completions per month during 2006 and 2007.  And since the late 1990s the normal level of completions has averaged over 100,000 per month. 

What this tells us is that we are still in a very abnormal property market, with mortgage completions at less than 50% of what is normal for this time of the year.  There are probably two main factors for this historically low level of mortgage completions:

1 – People do not want to buy right now.  Whilst this is difficult to determine without a large-scale survey, there may be some truth in this, whilst property prices may seem affordable to some, the worry of possible redundancy will clearly inhibit many from wanting to take on a new financial commitment.

2 – The banks simply are not lending to meet buyer demand.  There is plenty of anecdotal evidence of this, news articles are published almost daily about cases where applicants are denied mortgages.  With the high level of deposits required and increased “credit worthiness” requirements  it seems easier for the average person to run a marathon than it is to get a mortgage from a bank.

Whilst we could not find factual data to support our view it seems that the most significant factor preventing a recovery in the property market is the inability of banks to lend.

We found some other interesting data published by the Council of Mortgage Lenders (CML) which supports our views.  Each month the CML publishes figures on gross mortgage lending, in effect the total number of mortgages provided.  This is a better indicator to gauge banks performance in providing mortgages than the often published  “net lending”, as it is not distorted by the amount of debt repaid in any one month – gross lending = the total mortgages provided.

So what does the gross mortgage data tell us? Based on CML statistics gross mortgages advanced in the 2 years prior to the credit crunch were averaging £30 billion per month, but so far in 2009 mortgages are averaging just £11.8 billion per month. Perhaps even more surprisingly, for August 2009 gross mortgages totalled £12.6 billion compared with £19.9 billion in August 2008, that is over 36% down on the same month last year.

Overall there is some pretty compelling data that clearly shows the property market transactions and in particular bank lending is far below where it needs to be to support a healthy market … there are enough would-be property buyers, its just that they are finding is extraordinarily difficult to obtain a mortgage!

Whether you are a property buyer or a property seller it is confusing to hear the plethora of reports telling us what is happening to property prices.  Some of those publishing reports have a vested interest, for example those who represent banks and estate agencies.  To understand what is happening with property prices you need to be aware of some underlying factors to help interpret the reports published.

1 – The data set used.  Some examples are; the property valuations collated by new mortgage lending; the asking prices and agreed prices via estate agents; the land registry actual sold prices.  Each set of data will often provide a conflicting picture of what is happening with property prices.

2 – Timing of reports.  Data is often collated for the previous month, but in some cases it takes a longer period before historic data can be reported with any accuracy.  For example land registry updates after a purchase has completed, this can be weeks to many months.  Such delays make the accuracy of reporting on the “previous month” less accurate, it is only after a longer period has elapsed that more accurate reports can be produced.

3 – Sample size, e.g. how many sales are being completed.  With smaller volumes of transactions the accuracy of reports will reduce.  For example if 100 sales were completed across UK in September, then 200 in October, someone could report a 100% increase in house sales for October.  At the same time if the average sold price of the 100 properties in September was £150,000, then in October the average was £165,000, then someone could report prices had increased 10% in October!  These are clearly small numbers for the example, but they put the point across, until we reach a “normal” levels of sales activity the data will be less accurate.

To sum all of this up…

We will continue to see conflicting reports, some saying prices are increasing, others saying prices are falling.  The fact is that no one knows precisely what is happening with property prices.  Until market uncertainty reduces and banks provide a more “normal” level of lending there will continue to be a higher level of uncertainty about property prices. 

The best guess anyone can make is we are probably near the bottom of the market for residential properties, prices may fall a little further, especially in areas of the UK with poor local economies, but the worst is behind us.

If you are itnerested you can read more about what we think lies ahead for UK property prices in our blog here …. http://www.repaymortgage.co.uk/blog/2009/08/16/uk-house-price-predictions/